PartyGaming is to acquire the gaming assets belonging to its smaller rival Empire Online in a deal that could be announced as early as today. It is expected to be the first in a flurry of deals in the internet gambling sector in the wake of US anti-gambling legislation passed in October.

The acquisition, which is understood to value Empire's gaming assets at between $30m and $40m (£15.3m-£20.4m), provides the exit that its founder and chief executive, Noam Lanir, has been seeking for months. Long before the ban came into force he had become sceptical about the young industry's prospects given the hostile stance of US regulators and politicians.

For PartyGaming, the acquisition brings with it Empire's marketing expertise. The Aim-listed Empire specialises in recruiting punters through its "skin" websites. It receives a cut of revenues from its various gaming service partners.

The expected transaction comes despite a bitter contractual row last year over how much the skin website group should be paid by PartyGaming. The dispute was settled in February with a surprise $250m payout to Empire. Most analysts believed the row would drag on for years and fatally harm the smaller company. PartyGaming's then chief executive, Richard Segal, departed weeks later.

After the settlement, Empire looked for other online gaming investment opportunities and is believed to have come close to making an approach for BetonSports, the Aim-listed firm that has since found itself at the centre of US grand jury indictment on a string of charges including racketeering and fraud.

A series of clampdowns on internet gaming operators in the US, including the arrest of two directors of London-listed firms, persuaded Mr Lanir to hold on to his cash. Instead, Empire is transforming itself into an investment company. In an interview with the Guardian this year, he said: "We will take into 2007 a completely new company."

Despite Mr Lanir's misgivings about the online gambling industry, he retains a 32.6% stake in the firm.

The takeover was expected to be signed last night. No one was available to talk about the negotiations. Shares in Empire closed up 1.25p at 44p.

All London-listed online gaming operators have closed down their US operations after the anti-online gambling legislation, contained within the Safe Ports Act, was passed in October. Several private operators continue to cater to US customers, including the Israeli-backed PokerStars, which took over from PartyGaming as the world's largest poker operator when the law came into force.

Signs of a US clampdown were increasingly apparent before the legislation, Mr Lanir has argued. BetonSports' former chief executive David Carruthers found himself under house arrest in the US. Peter Dicks, chairman of Sportingbet, was arrested while in New York over his company's possible breaches of Louisiana morality laws. Both have denied wrongdoing. A number of states had introduced laws to prohibit online gaming.

The law nevertheless surprised most operators and investors, wiping more than £900m from the value of London-listed gaming stocks at a stroke. The companies continue the struggle to restructure their business models but most concede a round of consolidation is almost inevitable after the loss of the US market - said to account for half of the $12bn industry.

Ladbrokes, Britain's second-largest bookmaker, announced last month it was in talks with PartyGaming's rival 888 about a possible takeover. Takeover speculation has also focused on Sportingbet and PartyGaming itself.

Backstory

Empire Online founder Noam Lanir, the charismatic son of an Israeli war hero, received a windfall of £50m when the business floated on the Aim market in June last year. Empire's value at float of £510m increased by 60%, but investor confidence was shaken by a contractual dispute with PartyGaming. PartyGaming suggested acquiring Empire at almost a third of its float price - a move that added to acrimony between the two firms. Mr Lanir surprised everyone by winning a $250m settlement from the much larger gaming firm. Foreseeing the industry would be ravaged by a regulatory clampdown in the US, he began looking at alternative investment projects. A sale of gaming assets would mark his and Empire's exit from the industry.